As 2015 enters the rearview mirror, most of you will ask the question: how did I do financially in 2015. Did you save as much as you wanted? Did you pay off the debt you intended? Did you give as much as you wanted to charity?
Many of us tend to measure where we are by how much cash we have in the bank. But, if you are like me, you would like to know in a little more detail how you actually did last year. I have found that while most people want to know the answer to this question, few want to spend the time to dive deep enough to answer it. To address this obstacle, we have come up with a handy tool to help quickly assess where you have been and where you are going.
We call it the Live, Give, Owe, Grow pie diagram. It is budgeting without creating a budget. To use this tool you only need to know 5 pieces of information:
How much money did you make in 2015?
How much did you pay in taxes in 2015?
How much did you make towards debt payments in 2015 (not including home mortgage)?
How much did you save in 2015?
How much did you give to charity in 2015?
If you can answer these 5 questions, then you can get a good picture of how you did in 2015. Here’s how it works. Take the amount of money you made last year and subtract from it all of the items in 2, 3, 4, and 5 above. This number will then tell you how much you spent on your lifestyle. You can then take your lifestyle number and your numbers from 2, 3, 4, and 5 and put them into a chart like the one below. This chart will give you a rough approximation of how much of your income you have allocated to lifestyle (Live), giving (Give), taxes (Owe), debt (Owe), and savings (Grow).
Example Live, Give, Owe, Grow Analysis:
Income (2015): $75,000
Taxes (2015): $7,500
Debt (2015): $12,000
Giving (2015): $7,500
Savings (2015): $3,000
Subtract $75,000 – ($7,500+$5,000+$7,500+$3,000) = $45,000
Lifestyle = $45,000
You can then look at these percentages and determine if you like what you see. If you do, well done, keep it up in 2016. If you do not, you may want to spend some time breaking down your Live piece of the pie to determine where you have been spending and where you can cut back. The great thing about this tool is that it gives you a very quick analysis of how you are spending your money. Once you know where your money went, you can determine if you like where it went and change it if you do not.
Get started in 2016 knowing what you want your pie to look like. Revisit these questions throughout the year and make changes as you need to. If you take the few minutes to do this exercise, you will be well on your way to knowing where your money is going in 2016 and you will have the tools to make changes if you do not like the results.